In a recent judgment, the Gauhati High Court emphasized the importance of compliance with the Goods and Services Tax (GST) registration laws in public tender processes. The Court ruled that a retailer cannot be presumed to qualify for an exemption from GST registration without presenting valid supporting evidence. The case, Balen Roy Medhi vs. State of Assam (WP(C)/1069/2024 and others), involved allegations of irregularities in the award of contracts by the Assam Animal Husbandry and Veterinary Department for the construction of Assam Type Sub-Centre Buildings across Nalbari District. The ruling was delivered by Justice Sanjay Kumar Medhi on September 27, 2024.
Background of the Case
The case arose when Balen Roy Medhi, the petitioner, filed multiple writ petitions challenging the tender process undertaken by the Assam Animal Husbandry and Veterinary Department. The department had invited bids for the construction of several sub-centre buildings, with the estimated cost for each project being ₹33.71 lakh. The petitioner contested the bids submitted by the private respondent (Respondent No. 5 in the case), alleging that the respondent had fraudulently provided false GST registration details as part of the tender documentation.
The petitioner argued that the private respondent had quoted a rate that was more than 15% below the approved rate, which required justification under the tender document’s qualification criteria. Upon investigation, it was found that the GSTIN number provided in the justification belonged to another entity, M/S Joy Maa Hardware and Sanitary, instead of the claimed supplier, Maa Enterprise. The petitioner claimed that this constituted fraud and filed a complaint under the Right to Information (RTI) Act to obtain more details.
Legal Issues Involved
One of the central legal questions was whether Maa Enterprise, a supplier without a GST registration, could justify the respondent’s significantly lower bid rate. Under the Assam Goods and Services Tax Act, 2017, certain entities with a turnover below ₹40 lakh are exempt from GST registration. However, no evidence was presented to show that Maa Enterprise fell within this exemption.
Justice Medhi, citing Clause 2.A(g) of the tender document, noted that any bid quoting a rate 15% below the approved rate must provide a valid justification, including rate analysis and photographic evidence. The Committee responsible for managing the bidding process retains the right to reject the bid if the justification is found lacking after physical verification.
Court’s Decision
In its ruling, the Court observed that the private respondent’s justification for the low bid hinged on a quotation from Maa Enterprise, which falsely provided a GSTIN number not belonging to the firm. The Court rejected the explanation provided by Maa Enterprise, which claimed the error was inadvertent and that the company was not required to have a GSTIN. The Court was particularly critical of the fact that the clarification from Maa Enterprise was not issued on an official letterhead and bore no seal, making it unreliable.
Justice Medhi made a critical observation on the nature of the GST exemption, stating:
“A retailer cannot be presumed to fall within the exception from the requirement of GST registration without any materials placed on record, more so when the very purpose of the Act of 2017 is to bring all businesses under the purview of the Act.”
This observation highlighted the Court’s position that the GST Act’s exemption must be substantiated with concrete evidence, particularly in matters involving public contracts and state funds.
The Court also found discrepancies in the verification process conducted by the Junior Engineer responsible for assessing the bid. The same photographs were submitted as proof of material availability for multiple projects at different locations, raising doubts about the authenticity of the verification.
Furthermore, the Court noted that all private respondents in the case, who were awarded the tenders, shared a common address, raising suspicions of favoritism and nepotism in the tender process. The Court expressed concern that the entire process seemed predetermined to favor certain bidders.
The Gauhati High Court quashed the work orders issued to the private respondent and ordered the department to re-allocate the remaining works to eligible bidders who meet the tender requirements. However, since a significant portion of the work had already been completed, the Court allowed the completed work to remain intact but mandated a re-tendering process for the unfinished portions.
Key Observations by the Court
1. GST Compliance: The Court rejected the private respondent’s justification of GST exemption, stating that businesses must substantiate their claims with proper documentation.
2. Verification Process: The Court found flaws in the verification reports, which used identical photographs for different projects, undermining the credibility of the tender evaluation process.
3. Nepotism Allegations: The Court pointed out that all private respondents, who were different individuals, had the same address, which indicated a possible case of nepotism in the awarding of contracts.
Case Title: Balen Roy Medhi vs. State of Assam and Others
